ARLO Explains 6 Steps of How to Repay Reverse Mortgage After Death

If you are the heir to a borrower who has a reverse mortgage that has passed, here are the steps we recommend you follow:

Step 1: Accessing Your Most Recent Reverse Mortgage Statement

Finding Your Latest Statement – Begin by locating the most recent statement for your reverse mortgage.  This document is crucial as it contains essential information about your current mortgage status.

Understanding Your Statement – Once you have your statement, it’s important to comprehend the details it provides.  We offer guidance on interpreting the information in your reverse mortgage statement here.

Why It’s Important – A clear understanding of your statement will inform you about your outstanding loan balance, interest rates, and other relevant financial details.  This knowledge is vital for making informed decisions about managing or resolving your reverse mortgage.

Step 2: Engage with an Elder Real Estate Specialist

Reaching Out to a Specialist – Connect with an elder real estate specialist in your area.  Their expertise in real estate matters related to senior homeowners is invaluable, whether you’re considering selling your home or not.

Assessing Your Home’s Market Value – Even if you’re not planning to sell, it’s beneficial to understand the potential market value of your property.  An elder real estate specialist can provide a realistic estimate of what your home could fetch in the current market.

Additional Services and Support – Beyond property valuation, these specialists can offer guidance on various aspects of estate management.  This includes assistance with organizing and conducting estate sales, should you require such services.

Why This Step Matters – Gaining insights from a real estate specialist can help you make more informed decisions about your property.  Whether for future planning, considering a sale, or understanding your estate’s value, this professional advice is crucial in navigating your estate options effectively.

Step 3: Securing Title

The Importance of Holding Title – Ensure that you have legal title to the property.  This step is critical, especially if you’re considering selling the property or transferring its title to someone else, such as a family member or a third party.

Navigating the Probate Process – In many cases, transferring title requires going through the probate process.  This is particularly true if the property is part of an estate following the owner’s passing.  Probate is the legal procedure of transferring property ownership after death.

Consulting with an Estate Attorney – It’s advisable to seek the services of an estate attorney to guide you through this process.  If the original borrower had legal representation, contacting their attorney could be a beneficial starting point, as they might already have relevant background information about the property.

Step 4: Decide if you wish to sell the home or walk away

Keeping the Home – If you opt to keep the house, you’ll be required to settle the mortgage balance.  However, if the outstanding mortgage amount exceeds the home’s current market value, you are generally only obligated to pay 95% of its market value.

Selling or Transferring the Property – Should you decide to sell the home or transfer it to a family member, involving the elder real estate agent and ensuring the title is in your name are key steps.  These actions will streamline the process and set a clear direction forward.

Understanding the Implications of Walking Away – Walking away from the home means allowing the lender to take possession of it.  This decision should be made after carefully considering your financial situation and future housing needs.

Step 5: Communicating Your Intentions to the Reverse Mortgage Lender

Initiating the Conversation – It’s important to proactively contact your reverse mortgage lender, especially after deciding on the property.  While the lender might already be aware of the borrower’s passing, you must convey your plans regarding the property.

Timing and Preparedness – If you’ve formulated your plan of action – to sell, refinance, or transfer the property – it’s advantageous to inform the lender as soon as possible.  This is particularly important if they haven’t contacted you about the due and payable loan.

The Lender’s Role in the Process – Keep in mind that the lender has specific responsibilities to fulfill on their end.  These may include property appraisals, communicating with HUD, and other administrative tasks.  By informing them of your readiness to proceed, you can help expedite these processes.

Providing a Letter of Intent – A formal letter of intent can be a useful tool in this communication.  It clearly states your plans and intentions, offering a tangible reference for you and the lender as you navigate the next steps.

Step 6: Handling Personal Belongings and Estate Sale Preparations

Preparing for Property Transition – If your assessment leads to the conclusion that selling the property isn’t financially viable and you choose not to retain it, it’s time to prepare to vacate the home.  Start by removing all personal items and belongings of your loved one that hold sentimental or financial value to you.

Coordinating with Estate Sale Professionals – Once you have taken what you wish to keep, the elder real estate professional you’ve consulted can likely refer you to an estate sales expert.  These professionals specialize in managing the sale of remaining personal items within the home.

Conducting an Estate Sale – The estate sales team will organize and execute the sale to liquidate the items you’ve chosen not to retain.  Their pricing, marketing, and selling expertise can significantly ease this process for you.

Handling Post-Sale Procedures – After the sale, the estate sales professionals will typically oversee donating any unsold items.  This step clears the property, can contribute to final expense payments, and potentially provide tax benefits.

Consulting a Tax Specialist – It’s advisable to consult with a tax professional regarding the estate sale and donations.  They can guide you on the necessary receipts and documentation to file final tax returns and maximize applicable tax advantages.

Ensuring a Smooth Transition – This process is essential for a smooth transition away from the property, ensuring that personal belongings are respectfully handled and the property is cleared for its next phase.

Top FAQs

Q.

Do you have to repay a reverse mortgage?

Yes, a reverse mortgage is a loan, just like any other, requiring repayment.  No payment is required on a loan for as long as at least one of the original borrowers (or an eligible non-borrowing spouse) on the loan continues to live in the home and pay the taxes, insurance, and other property charges (i.e., HOA dues) on time.  The loan becomes due and payable after the last borrower or eligible spouse leaves home, but you can make payments before that time with no prepayment penalty if you desire (but it is not required).  The great thing about reverse mortgages is that you can choose when and how you repay the loan.
Q.

Can you pay back a reverse mortgage early?

Yes, you can.  You can make full or partial payments if you choose to do so.  Reverse mortgage loans do not have any prepayment penalties.
Q.

What happens if you don’t pay back a reverse mortgage?

A reverse mortgage loan is only due and payable when no original borrowers or eligible spouses are living in the home or if you fail to pay your property charges promptly.  If the balance is not paid off through a sale, refinance, or other acceptable funds, the loan will go into foreclosure like any other loan.  Still, the loan is a non-recourse loan, meaning the only security the lender has is the property.
Q.

Can heirs walk away from a reverse mortgage?

The heir(s) to a home with a reverse mortgage loan can walk away from a property if that is their wish.  A reverse mortgage loan is a “non-recourse loan,” which means you can never owe more than the home’s value.  Suppose an heir inherits a house where the accrued balance was to be higher than the current home value.  In that case, they can sign the property over to the lender servicing the loan without any further obligation to the lender.
Q.

What happens if you inherit a house with a reverse mortgage?

The first step for any heir would be to ensure they have the right to speak with the lender.  Most lenders cannot talk with a third party about a loan unless that individual has authorization from their borrower in advance or they are the new title holder.  Therefore, if you know in advance that you are to inherit a property with any loan on it, you should speak with the owner and verify that there is a trust naming you as the successor beneficiary and that they add you to the title in advance or that they at least write a letter to their lender authorizing you to speak with them and them to you on all matter relating to the loan.  Next, take immediate steps to determine what you wish to do with the property.  Remember, you cannot sell or refinance the home until you own it, which may require probate.  The reverse mortgage will be due and payable, and the lender will be looking to see that you are taking positive steps toward retiring the loan (paying off the loan with your funds or a new loan in your name or selling the property and paying it off with the sale proceeds).  If the loan balance is higher than the current value, you also have the option to pay the loan off at 95% of the current market value or the amount owed, whichever is less.  Still, you need to be sure you can obtain a new loan for 95% of the value if you do not have the funds readily available.  If you do not wish to keep or sell the home, you may contact the lender and let them take the property and owe the lender nothing.  To deed the home to the lender, you must have the title.  Otherwise, the lender can begin a foreclosure action (which does not affect you or your credit).

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